Dark side of the Green Energy Revolution

Cobalt Red is the culmination of the investigative work done by the author over a period of years - the contents of which make it a very moving read. It gives a detailed account of how the Cobalt supply chain relies heavily on artisanal mining and child labour in Democratic Republic of Congo (DRC). 

Cobalt element allows batteries to hold more charge. Cobalt is used in primarily three types of rechargeable batteries - Lithium Cobalt Oxide (LCO) , Lithium Nickel Manganese Cobalt Oxide (L-NMC) and Lithium Nickel Cobalt Aluminium Oxide (L-NCA) (used by Tesla). Cobalt can make up-to 60% of the battery composition. It is found alongside Copper in the ground and at times Uranium has also been found in the deposits. Due to geographical quirks, widespread Cobalt deposits have been found alongside the East African Rift. 

Mining giant Glencore has a big presence in Africa and has been criticized for working conditions in its operational mines and how it has manipulated Cobalt supply in the global markets. In one instance, it shut down a mine in DRC claiming shortage of Sulphuric acid to process the ore but it resulted in low supply of Cobalt and the price shot up on the London Metal Exchange.

Even though big technology and car companies have multiple press-releases swearing of any such elements in their supply chain. The reality found by the author in multiple visits to DRC was very different. The organizations, which have big tech and car companies as affiliates, that are supposed to enforce and vouch for keeping the supply chain clean seemingly have no presence on the ground specially in DRC which has 70% of world's supply. The author saw first-hand the brutal working conditions in DRC which resembled more of 18-19th century.

Specially, since artisanal miners aren't employed by any company - no one takes ownership of this problem. And because the sources of information for the government and the miners are different for obvious reasons - this aspect of mining never comes up to the surface.

It was particularly depressing to read about DRC's tragic past - from Belgium's King Leopold who ruthlessly ruled and extracted profits from them until the 1960s to how political leaders have assassinated and governed the country in a dictatorial fashion. This particular tidbit mentioned in the book caught my attention: when DRC gained independence in the 1960 - King Leopold's grandson Boudain was present at the ceremony and said this was the culmination of the genius of King Leopold. To which the democratically elected DRC PM, seething with anger responded "nous ne sommes plus vos singes".

Also, there are elements of economic imperialism making matters worse i.e Chinese companies running mines in the interiors of DRC with no regard for safe working conditions, fleecing the country by underpaying taxes and treating the native Congolese as second-class citizens. Since DRC doesn't have sufficient infrastructure to process these ores, they are shipped to China for processing and battery manufacturing.

The Cobalt supply chain is the dark underbelly of push to renewables and electrification of everything. Something that's not talked much about in the western world.

The author ends the book by posing a very obvious question -

If kids from Cupertino aren't supposed to dig for a living, then why should the kids from Congo?

Easy Capital

The book talks through the point of view of Thomas Hoenig, who was often the lonely voice of dissent when the Federal Reserve Governors voted on whether to embark on QE under the chairmanship of Ben Bernanke. (There were others too but they never formalized their dissent by casting a NO vote which by the way would have shook the long standing traditions of the Fed of mostly unanimously consented decisions).

The book does an excellent job of simplifying the jargon of the Fed that is often obtuse and incomprehensible to something an average person can understand.

First off, in FedSpeak - “hawks” and “doves” mean the opposite of what they do in the context of foreign policy.

In FedSpeak:

Hawks - Try to limit the Fed’s reach.

Doves - Argue for aggressive intervention of the Fed.

The book throws some insight into how J. Powell views things related to monetary policy. He has worked in Private Equity in the past so he clearly has seen from close quarters how QE and low interest rates drive up valuations and can lead to distortions in the economy. Specifically, it incentivizes PE firms to take more adventures and make money through financial engineering. At certain points even though he himself didn’t cast an official dissenting note, he clearly voiced his concerns about QE.

Post 2008, when there were reforms to be made - the author suggests the administration did not opt for radical reforms and somewhat middle-of-the-road reforms. Hoenig’s proposal in itself was to break the riskiest parts of banking away from the economically vital part so riskier banks failing wouldn’t impact the system. However, the government. decided to create a more intricate web and labyrinth of regulatory bodies to oversee them. (CFPB/Dodd-Frank).

Fed and Capital Cycles

The cycle goes like this: 

Cheaper Money → More Loans → More demand/growth → High employment + Driving up prices → High inflation → Hike interest rates → Expensive capital → Less loans and less demand → High unemployment → Less growth

• In one of the chapters, the author explains there are two types of inflations - (1) Price Inflation (2) Asset Inflation.

• Price Inflation implies the cost of everyday/essential items - something that is reflected in CPI.

• Asset Inflation refers to the inflation in the prices of assets that are a store of value (like real estate, stocks).

• Thomas Hoenig believed that low interest rates for too long would lead to Asset bubbles (or asset price inflation).

• In hindsight, this seems to have been a problem that the Fed failed to address. They were so focused on CPI/regular price inflation - they did not take any meaningful steps to address the ballooning asset prices as a consequence of low interest rates and QE. This meant, people with assets became richer and richer while at the same time those without it kept falling further behind.

• As per the analysis by Allan Meltzer - Reason for the high inflation in the 1970s in the US was- more weight was placed on maintaining high/full employment than on reducing inflation.
  Now, let's parse this - Fed printed more money in the 70s unaware that it was causing more inflation as there was more money floating around to chase limited goods. Add to it the events like the formation of OPEC and its cartel-like policies driving up oil prices.
  
  

Effects and Side-effects of Quantitative Easing 

• Between 2008-2010, the Fed printed $1.2 trillion of money -more than what it had printed in the last 100 years.

  

  

  Fed Balance Sheet